Web3 stands for decentralized Internet, although users access it with centralized services – a point of criticism. This is based on a misunderstanding.
Web3 (also known to many as Crypto) is understood to be the third iteration of the Internet – it is the Internet owned by developers and users, governed by digital tokens. In order to better understand what this means and why Web3 is a decentralized Internet despite central services, one must look at the two previous phases of the Internet.
Open Platforms on the Web1
The Web1 era (circa 1990 to 2005) was based on open protocols that allowed the providers and users of the Internet to capture most of the value creation themselves. This includes, for example, the HTTP protocol, which computers use to exchange data with one another and thus enable the Internet. The same applies to IP (identification addresses of servers and computers) and DNS addresses (domain names such as blanc.ch ): Individual Internet users are in possession of these addresses and can exchange information on the Internet – without the developers earning any money from it. Accordingly, most of the added value belongs to the users: for example, if I set up a website and earn money with it, I only pay external providers for the direct services that I use from them, such as web hosting.
Centralized value creation on the Web2
In contrast, Web2 (since c. 2005) is dominated by centralized companies such as Google, Apple, Amazon, and Facebook, which keep most of the value creation to themselves. This is mainly due to the fact that Web2 is based on networks with corresponding network effects – the web itself, email, social apps like Instagram and Twitter, but also marketplaces like Uber and Airbnb are all networks. And thanks to network effects, many of these networks have tremendous power over their users (and, accordingly, are extremely profitable).
How does this happen? In the early stages, centralized Web2 platforms try to attract as many users as possible by not only offering a good product but also generously sharing the value creation with their users. Because in most networks, each additional user increases the network effects and thus the benefits of the networks. And the greater the network effects, the more new users are attracted and the greater the power of the platforms.
As soon as the network effects are large enough (or the network effects are strong enough), the platforms than begin to keep more and more of the value creation for themselves – after all, they want to continue growing as a company or increase profitability. They can do this without any problems on Web2 since the centralized providers of these networks are usually not only in possession of the user data, but the users can also only switch platforms with difficulty thanks to the network effects (and the resulting monopoly position). Because if I want to leave Twitter or Instagram, for example, then I lose the followers I’ve built up over the years. And there aren’t really many alternatives.
Decentralized value creation on the Web3
On Web3, on the other hand, like on Web1, ownership, and control of data are decentralized thanks to open protocols – but unlike Web1, ownership and control on Web3 are regulated with clear ownership and incentives in the form of tokens (which simply put ownership over a piece of the internet dar). An example of this is Non-Fungible Tokens (NFTs) on the Ethereum blockchain: Ethereum, in simple terms, is a decentralized and global computing protocol owned and operated by users operated by them (the same applies to other blockchains such as Solana or Polkadot).
And users within the Ethereum network can submit, own, and trade NFTs such as art, photos, code, music, text, game objects, credentials, voting rights, or access cards without losing control of their data – although they often use centralized services like the Use trading platforms Coinbase or the NFT marketplace OpenSea.
Because this data can be transferred from centralized services such as Coinbase to direct competitors such as FTX at any time and with minimal (or sometimes even no) switching costs. Thus, these services cannot build up network effects. And money can only be requested for direct services, for example in the form of transaction fees. Accordingly, users must be retained with a compelling service or the lowest cost. The rest of the value creation stays with the developers and users of Web3.
Thus, value creation in Web3 takes place decentrally with the developers and users of the Internet and not with the centralized services as in Web2. And that’s exactly what the idea of Web3 is all about – or rather why Web3 is a decentralized iteration of the Internet. Despite the centralized services that many use to access Web3.